Forex Investment and Currency Trading

Having broken above its November 2008 high during the Asian session, the DXY USD index has consolidated above this level during the European morning. Pressure on equity markets following the technical break lower in the S&P500 on Friday and the failure of EU ministers to agree a support package for Eastern Europe continues to provide a USD supportive backdrop. A caveat to this is that extreme form risk aversion could potentially start to drive relative expectations in a USD negative direction. Indeed we would attribute the stalling in USD-JPY (ahead of the 50% retracement of the move down from Aug-08 at Y98.90) at least in part to a compression in US over Japan yields. Focus this afternoon will be on the US ISM manufacturing report. On a stronger than expected out-turn, look for USDJPY to rally. On a weak number, expect more risk aversion and pressure on EURUSD.

Japan – JPY drop waning; ahead of an eventful week
The technical downward momentum for the JPY appears to be waning ahead of an eventful week. Over the weekend European leaders failed to reach an agreement on a stabilization package. EUR-USD will probably drop on European financial sector uncertainty, central/Eastern Europe concerns, ECB monetary easing expectations and the USD firming on risk aversion.